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August 6, 2008

Seventh Circuit Vacates and Remands Case For Resentencing As District Court Failed to Apply Correct Standard of Proof

In United States v. Schroeder, the Seventh Circuit clarified the important distinction between the standard for admissibility of evidence at sentencing hearings and the government’s burden of proof with respect to a disputed fact -- in this case, the amount of loss based on relevant conduct. 

Schroeder’s first sentence, for one count of tax preparer fraud, was reversed by the Seventh Circuit upon a joint motion, because the sentence imposed was six months longer than the statutory maximum.  Oops. 

Schroeder’s resentencing hearing fared little better.  Here, the primary area of contention was the tax loss calculation.  The government’s loss figure included amounts based on civil audits of Schroeder’s tax return clients, which revealed overstated or misrepresented deductions.  Schroeder disputed the inclusion of this tax loss, arguing that the government had not proven that these improper deductions were attributable to Schroeder as opposed to his clients.  Ultimately, the district court denied Schroeder’s objection, finding that the loss calculation was “based on information that is of sufficient reliability that can properly be considered under the guideline provisions.”

The Seventh Circuit reversed.  It first held that the resentencing hearing was “flawed from the outset” because the district court “announced its findings as to the amount of tax loss—a critical sentencing determination—before Schroeder’s attorney had an opportunity to comment on the issue.”  Even though the defense was able to make its arguments to the judge thereafter, the Circuit found that the sentencing judge’s prejudging of the tax loss issue “undermined the fairness of Schroeder’s hearing.” 

Next, the Circuit noted that although the standard for admissibility at sentencing is whether “the information has sufficient indicia of reliability to support its probable accuracy,” a disputed fact must nonetheless be proved by a preponderance of the evidence.  The Seventh Circuit wrote:

The court’s statements at resentencing strongly suggest that it confused the standard for the admissibility of evidence at sentencing with that for proving relevant conduct, a very serious error.  As we have already noted, it is well established that the government must prove amount of loss by a preponderance of the evidence.  See United States v. Omole, 523 F.3d 691, 701 (7th Cir. 2008).  The preponderance of the evidence standard requires “that the fact-finder believe that the existence of a fact is more probable than the non-existence of that fact.”  United States v. Smith, 267 F.3d 1154, 1161 (D.C. Cir. 2001).  In determining whether the government has met its burden of proof at sentencing, a court may consider information that would not have been admissible at trial if it has “sufficient indicia of reliability to support its probable accuracy.”  United States v. Artley, 489 F.3d 813, 821 (7th Cir. 12 No. 07-3773 2007).  But the presumed accuracy of information that has “sufficient indicia of reliability” does not relieve the court of its responsibility to weigh the proffered evidence and determine whether the government has proven that the existence of a disputed fact is more probable than not.

The Seventh Circuit noted that the district court never found that the government proved the tax loss by a preponderance of the evidence, and was troubled by the court’s apparent suggestion “that the government had met its burden of proof merely by submitting admissible evidence.”  The Circuit also concluded that the district court had failed to hold the government to its burden of proof because it had treated the improper deductions “as frauds attributable to Schroeder without conducting any analysis as to what evidence proved that Schroeder’s unlawful conduct caused the underpayments.” 

Maybe the third time will be the charm.

Download united_states_v. Schroeder.pdf

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August 6, 2008 at 12:26 PM | Permalink


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